Brent-WTI Surges To 2-Month Highs

Both the spring maintenance period in the US (creating a 'glut' of WTI), Seaway pipeline, and tensions in the Middle East are exaggerating the Brent-WTI spread which traded back to two-month highs. In the last week or so the differential has surged from around $16 to over $22 as WTI fell and Brent prices surged. There is a great degree of seasonality in this shift (and typically the Spring maintenance period has ended within the next week) but Iranian sanctions remain at the forefront (as does the belief that Germany's growth will be the engine of European demand - especially if EUR drops). This year was 'different' in so much as WTI outperformed for the first few weeks - potentially on the back of the global rise in risk-assets thanks to global central bank largesse. It appears the oil market is hinting at some slowdown.

The Brent-WTI spread is highly seasonal (with Spring maintenance creating a buildup pre-refinery)... and is close to its typical seasonal peak..

but the divergence is dramatic (after a few weeks of Central bank largesse pumped assets up everywhere)...

Unlike what has been happening from 2009-present, Brent will not collapse for potentially three reasons;

i) Iran/israel

ii) TPTB around the world are now fully committed to hyperinflation and the appearance that all economies are doing great, hence demand will not collapse as even more "make-work" projects come online.

iii) Serious problems in the current state of oil field production, delivery, and discovery as many things in that supply chain need serious attention (according to my brother - 20+ years in the industry). Lots of shit needs to be fixed/upgraded etc. Unless of course we are going keep enriching Mr. Buffet's rail lines of course as one example.

And if it goes pair shaped between Iran/Israhell, it matters not what the price of oil is mate, cos' the chinese and ruskies will have some say in this matter, and we all lose. 2013 is shaping up to be the year this comes down.

I can feel it in me bones. And it makes me physically sick thinking we could be entering something that wipes the slate completely clean. For all of us.

ii) has always been my favorite because it's a self feeding idiotic "fix" that worsens everything. Vital raw resources deplete so the modern credit economy suffers so its fought with inflation that only increases those prices further. Oh wait, it helps the elite. Never mind

"enriching Mr. Buffet's rail lines of course as one example" payback is a real bitch when it takes the form of political favors on the taxpayers back. All that rail bound oil for just saying "tax us more"...

Best I can tell Brent is the throttle needle measuring the amount of poison gas filling the room where the fiat based soverigns play.. and is ignoring what any of the mouth pieces have to say or where they push this fiat vs. that fiat.

It's about a safe store of value and nothing else. A gram is gram is a gram, and has been a safe store for your wealth for six thousand years, even more so now as all paper promises are burning. Anyone with any "excess" income should be interested in preserving some of that wealth.

No way. There was a huge difference in interest rates during that time frame. Iterest rates were coming down during that time frame. There is no way that the Bernank can raise rates to bring down gold. Even if he started gold would move higher on fears that they would kill the dollar.

Forget rates doc, they will be kept low here from 2-4%. We are never going back to an era of the Fed raising rates, but gold will come down on its down, first with help from PPT to break the decade long bull trend, and then once the psychology of participants turns against it.

Remember doc, even though there was plenty of inflation from 78-98 (things cost a lot more in '98!) gold did absolutely nothing for investors.

Besides, I really hate to even ask this- but have you guys ever considered the idea that in the grand scheme of things the buying power for gold is very high right now?

Which would you rather have guys- 18 gold 1oz coins or a vintage stingray corvette?

Both hard assets, both will do well in inflation. Which seems like the better realtive bargain to you a large handful of gold or this steel sculpture that can move you around the world? I can tell you the supply demand picture in classic cars is at least fixed to the effect that supply goes down every year (there wont ever be a new ore of vintage corvettes discovered, on the contrary some are removed from circulation every year as a few are crashed, or parted out, or rust away, or are poorly restored).

So we're going to attack Russia or China then? No? So we're going to prevent them from issuing a pan-pacific currency? No? Then the petrodollar is effectively dead already? Yes? Then what's the deal with the head in the sand "we got the biggest cock" mentality here?

No, sorry disnt you get that memo: there are no plans to attack Russia or China unfortunately

Pan-pacific currency? Shit like that is 20 years away if at all!

Petrodollar effectively dead? Thats perhaps the largest hyperbole Ive ever heard here. With the exception of those banana republics like Iran and Venezuela, the rest of the world will continue to accept the petrodollar for a long, long, time

I think you might be right about the farmland, in that it is a much better asset than gold. But even there I would be careful as bubbles have been known to form in farmland as well (in classic cars too, eg 1989)

I do know they are buying it, but it really doesnt indicate they are planning to go back to any sort of gold standard. The Bundesbank in Germany bought lots and lots of gold during its inception and although the D-mark was a strong currency, it still lost 90% of its value from 1950-2000

Even if we don't go to a gold standard, it will serve as a bench mark for the strenght of new monetary units. They're not buying it because it's shiny, it's money. As far as bundesbank having bought lots of gold in the past, well I'm sure they're glad they did. But having someone else hold it for you can be expensive, anything can happen from now to seven years.

The Bundesbank may be glad it bouht gold, but if you held their cash as a German from 1950-2000 you would still have lost 90% of your purchasing power, so I dont see what good came out of it.

Gold reserves are just that, reserves of metal. From the start of the gold-exchange standard in the mid-1920s until 1952, about 26 years, the dollar's monetary base grew from $6B to $50B while the U.S. gold stockpile grew from 6,000 tons to more than 20,000 tons

Gold is no different- you also either pay for storage and someone to guard it or you take your risks. That also costs money.

Besides, just like you guys often point out that ypu can technically make money leasing gold out, I loan my classic cars out for photo/commercial shoot and make about $1000 (plus insurance to 150% of the value) for a 3 day shoot. Its ample to cover costs.

My aunt has made more money collecting art over thr past 30 years than any of you could ever imagine making with gold but she has spent her life becoming an expert on art investment. She also gets fees from museums for exhibiting it that also more than cover the small costs involved in preserving paintings

Ill give you the idea that a small amount of gold is nicely portable, but storing 200k in gold will be just as expensive as storing a 200k classic car.

by the way, there is no theoretical reason to factor in a lot of gasoline if your intent is to simply store the car for future price appreciation in a vault. One tank of gas is enough to run it around the block every other week.

I doubt very many people will be burying such a cube in the yard or leave it in a home safe. It is the equivalent of over 120 oz gold coins. Ever check pricing on safety deposit boxes in really safe places like Switzerland- they arent cheap...

I think if the Bernak is content on letting equities stall out then he has a shot at keeping rates and gold in check. If equities keep climbing then rates are going to continue to climb as people slowly dump stock as they see losses on their bond holdings while watching the market climb. Ramping the market up while keeping rates low like this exposes the farce that the market is more and more. That is the wall that the Bernak runs into over time.

Te market doesnt have to double every year to sucker retail in, it just has to appreciate by the 8-10% on avg. theyre expecting.

Meanwhile gold is slammed and the Fed uses their arsenal of psychological weapons against it, while simultaneously allowing oil and other commodities a modest 2-3% yearly appreciation, with some years experiencing strong downside corrections.

The ten year was what...4%-7% throughout the 90's? If we are going for the nineties you have to factor that in. Otherwise we are not talking about the 90's. I think we would all agree that we ain't seeing 4-7% again.

There is a ton of money in bonds. If you (somehow) move up equities 8-10% avg from here on out then people will sell their bonds to get in on the rally. I would love to watch Bernanke's bald head sweating bullets as he justifies QE9 because he has to buy the stock being dumped on his head.

I hear you. I wish people would stop cherry picking time frames for everything, we are in uncharted waters. You can't pull 90's equities and just use that as your base case because stocks went up. That is why I am not giving you any time frame for a base case. I don't see a camparable one to throw at you.

Bernanke said he was doing QE3 or 4 or whatever to keep rates low and possibly lower them more. Those were his words, that was his plan. Steve Liesman claimed for months that QE3 would drop rates from 1.6ish down to 1.45. Rates instead have jumped up roughly 50bps. That makes Bernanke look stupid. He is already shown to have been stupid in his previous forecasts ("I don't buy the premise that there is a housing bubble etc").

The big question is, can the (bond) market impose itself on Bernanke or is he above the market? I think short/intermediate term he has proven he runs the show. He can probably keep rates low for longer than most people on here want to think he can. But in the longer run (my guess 3-6 years) he gets upended, and it's bad.

I hear you too, Im only xherry picking those dates to show there is evidence that gold and interest rates arent necessarily correlated directly to gold prices.

I also bring up the roaring 90's where equity markets rise, treasuries go lower (or stay low) and gold goes down while commodities are flat.

Ample precedent for these conditions, thats all.

Finally, if the world really cared about deficits and interest rates etc.. Then Japan would have been swallowed up into a hyperinflationary collapse years ago. As long as you control prices for avg. people (through commodities slams, expanding welfare, controlling M2, etc.), nobody really gives 2 shits about deficits. Not now anyway...

"I also bring up the roaring 90's where equity markets rise, treasuries go lower (or stay low) and gold goes down while commodities are flat.

Ample precedent for these conditions, thats all."

So, if the price of gold is artifically surpressed with occasional huge breakouts, wouldn't that be an argument for buying gold hand over fist? Buy low, sell high, right? Why would we buy artificially high stocks and bonds? Isn't that really the "dumb money" trade?

Interesting that your arguing that the "90's situation" applies today for some major asset classes, but not others. Especially when you subsequently comment on the Bernank "buying up 99% of bonds if he has to", which even as a hyperbole (hopefully?), suggests a completely unprecedented situation.

The reason I'm a gold buyer is entirely as a hedge against the collapse of any of the major currencies, including potentially the USD. I don't care which one collapses, I just know that gold is king of "barter" because it's the only currency that is provably money. I'm not holding it as a "generational heirloom". The risk of a major currency going under is very, very high.

Thats fair enough, as I was pointing out above, I only brought up the 90's to show that there is a precedent to having stocks rally, but commodities stay flat as gold tumbles. Secondly to show that there is not necessarily an inverse relationship to gold and interest rates.

And yes, I am emplpying a bit of hyperbole, Bernanke will continue to buy treasuries and it will be quite some time before it goes to 99%...

As for bartering, I think youretaking a big chance in predicting currencies will break down to that degree

BTW, your postings are appreciated, good to have counterarguments here that appear to have some actual thought behind them. I'm not a "goldbug" in the strictest sense (ie., I don't have 100% allocation), but I do consider it at minimum to be a "4th asset class" along with stocks, bonds, and real estate, and right now, it honestly seems to present the least amount of investment risk, particularly relative to it's USD price, which is how I earn most of my money from my productive work. Stocks, bonds, and real estate all have heavy, heavy fed support behind it, and gold has heavy fed support against it, so in order to appropriately hedge my holdings so that I'm not as subject to "Fed policy risk", I must necessarily have a significant gold allocation. It would be irresponsible for me not to.

hey thanks for saying so, I appreciate the reception. You do make a good point, but I would just argue that among the "4th asset classes", gold is perhaps at the moment the one hard asset that is due for a long period of underperformance. You would probably be better off increasing your exposure to real estate or farmland, as others have pointed out, or art or antiques as I mentioned, if your concern is hard assets for a hyperinflationary scenario.

I think it is very difficult to imagine a crash in other hard assets (say a deflationary real estate market), where there is a parallel inflationary trade in gold. So using gold as the one way to fight the Fed is a bit dangerous, because if they succeed in turning investor psychology against gold, you'll have a very hard time fighting that. Art and antiques will probably always do well as its difficult to imagine the 1% not diversifying themselves as well...

I know there's a rush of hot money into RE/farmland, what I'm suggesting is that real estate is heavily supported by the Fed (based on it's behavior of backstopping and directly buying the market), and would therefore not be a suitable "Fed hedge". I'm with you on art/antiques, it's just not an area of expertise for me and it's an investment area that's very easy to screw up, even if you get the general direction of the market right. For those with expertise in the area though, I certainly think it's worthwhile.

I don't necessarily buy the concept of a hyperinflationary scenario. I think significant, coordinated devaluation can happen while still maintaining the faith/confidence of the underlying currency. Gold to me is a currency hedge, because that's the Fed (and other CB's) primary role, influence of the use and trade of currencies. It would be no different than choosing to buy CHF or EUR to help ensure portfolio diversification. What I would suggest is that, in an era of global competitive currency devaluation, gold is the currency hedge against all devaluing currencies.

That is exactly the problem I think, that gold is often seen as a currency. But consider this- the rest of the worlds countries want to devalue but not too fast, so they must take some consideration before slamming one currency over another. Now who does Bernanke need to consider when slamming gold- nobody. To the Fed it is a victimless crime, if anything they will see it as restoring confidence in currencies that gold falls in investors minds.

Would you make the inverse argument then- that the rise since 2003 has been primarily driven by supply shortage? Or more likely was it a psychological drive to find a safe haven from possible currency collapse?

Yes of course the devaluation of the dollar in those years made housing a particularly hot investment as the hardest of hard assets. I was in Miami in the bubble years, I remember like yesterday everyones mentality was- fuck it inflation is going up so Ill put the money in a house, at least its a hard asset and I wont lose value. The funny thing is all those Miami investors were right for the wrong reason. Miami real estate ended up being hot again (as it is now) specifically because of the strong dollar! Russians and Brazilians love the idea of a Miami condo specifically because its denominated in USD...

Dude the general populace was in heaven from 2000-2007. No one at the retail level was afraid of a currency collapse, they still aren't. The general populace cannot even explain where the currency comes from yet their psychology drives gold prices?

lets not get ahead of ourselves with 'general populace'. I am talking about investors, including retail investors. Inflation is just too much liquidity chasing not enough assets. That certainly was what was going on in those years and many investors were very conscious of it and greedy for the returns. Housing became a particular bubble because lots of people thought it was the best way to play rising prices- with a hard asset. But the collapse in the paper housing market of course collapsed the physical housing market as well. Now just for a minute, take my contention that Bernanke wants to collapse gold prices and more importantly tame the enthusiasm of all but the most die hard gold bugs. Do you not think through first a crash in the paper price and then a "dead-money" flat market from perhaps $1000-1200 he can engineer this, and dont forget, every media outlet in the world will be hammering away at most investors day after day about how they are losing money in gold and how the decade long bull trend is over. Is it that much to conceive of that if the Bernank has total control of markets that he can indeed influence prices and psychology to such a degree? Would you not think gold should be higher already if the Bernank would allow it?

Well first off, I think Ben would like to keep it that way, right? What better way to dissuade retail from buying it than to collapse the price.

And as for retail not buying gold, I think you might be surprised, anecdotally I can only tell you I get asked about it constantly by my high-net worth clients.

Its not so much the fear of currency collapse that drives them, although that is a factor, what really drives them is the greed of the rally they just missed. They think, well surely if the smart money likes gold so much that it gets bid so high, then they must know something we dont.

The Bernank would much rather do without such sentiments.

Also it depends on your region of the world of course, look at this regarding golds (already huge) popularity among the German investing public for instance:

"a new study by the Steinbeis Research Center for Financial Services has discovered that 69% of Germans have invested in gold, with around half of them keeping bullion in their own homes[...]On a per capita basis Germans own around 117 grams of gold each, while including gold securities the average German owns around EUD5,750 of gold."

Ok, sorry im in a different time zone so thisll be my last post but just to say its merely one link to support my contention (again go ahead and email the guys who conducted the research if you have a problem with it), that with respect to any point in recent history (i.e. from 1900-2008) we can safely say investors as a whole are far more aware of gold as an asset class. And Im simply using that to say I dispute the general notion advanced by gold bulls that gold is totally under-owned etc.

Which is why I point out that if it were to ever get to the case where Bernanke does fear gold being a barometer to currency devaluation, he will take preemptive action to prevent that, and with the collusion of the entire world finance cartel and supercomputing in the form of control of electronic markets, that shouldnt be too hard.

A lot of people have conceded the point to me and then gotten into the idea of the paper gold and bullion market diverging, which I discussed at length below if you want to take a look.

Finally I just want to ask you 2 simple questions:

1. Try to think like Bernanke for a moment, wouldn't you do it if you were him?

2. My earlier question of if they arent manipulating gold at the moment, then why is it that prices seem suppressed to you? Surely if they are in control of prices, one can easily speculate that taking them down even further and keeping them low (as in the 1990s) would be in their interest.

so just to confirm- you see no price suppression whatsoever in gold at all right? It deserves to be just where it is and if it happens to go lower you will logically assume it was for fundamentals, right?

And never in history have investors "lost sight" of gold right. Thats odd then that the highest price in 1990 was $424 and the highest price in 1998 was $308. Its not as though there wasnt price inflation in that time...

the divergence concept isnt new, but i seem to feel my take on it (that paper going down will pull bullion down with it) didnt feel like retreaded material to the rest of commenters when I posted them.

1. there is no manipulation in the gold market, not now, not in the past
2. The decline of the 90's (despite CPI inflation) can be blamed entirely on fundamentals.
3. Any further declines fom here, if any, are too entirely due to fundamentals (esp. Production)
4. People never lost sight of gold, public interest is as high as it has always been, but can rise further

Now that I have a pretty good baseline and see how you twist and turn I'll figure it out at my leisure.

Just for giggles I do accept that there is manipulation in all things denominated in dollars, I also accept that fundamentals can still drive prices anyway, and that in the end I'm gonna keep stacking.

Dude i wanna say "nice talking" or w/e but its weird you guys have such a paranoia about new registrations (everybody cant have been here for years, can they?)...is there seriously such a thing as a troll who will take that much trouble just to annoy people on this board?

Its also weird that you seem to think that its essentially impossible for someone to read ZH and also think that gold will be an underperformer among hard assets if the Fed has anything to say about it

Anyway, i wanna leave off by saying good luck with your stacking, I really mean that sincerely, I think if you take the "long enough timeframe" thing to heart, itll be fine

Yeah i guess i see how it could feel that way to you. I just checked your page and saw youve been here nearly 4 years. Wow! Hats off man, you ar an OG around here I guess. Ive only been reading regularly for about 2 years. The part about the wait is just that whenever Ive felt like commenting on a story from time to time, there is that waiting period which I get, Im sure they have their reasons, but its a turn off bcause the whole reason i feel like signing up is usually one particular article which is going to be 6 days old by the time i register...

Plus to be honest, some of the comments have surprised me wading into the discussions, as I now often get the impression people just come here to be in an echo chamber where everyone just wants to hear the end is just around the corner, and "buy phyz" is the only advice you ever need. So i have posted a lot, which was interesting a ive stored up many thoughts that sort of came while reading here

you are on the site for marlocks whiteshadow. Some people on here understand more than others. But almost all of them understand they are being lied to. That is the common thread. They have past the point of wanting to hear the end is just around the corner. Many of the people here are in bad shape and NEED to hear the end is just around the corner. Rather than suffer in isolation, they congregate here together feed off each other's anger and resentment. They would prefer a reset and chaos than what they have right now. That is why your message, while unique and realistic, will usually be met with disagreement. If you have been following here for 2 years I am surprised you would be surprised by that.

But I am extremely glad you jumped on here, and i don;t care if you are new or not. You pose an alternative viewpoint and you can back it up. You force people to think things through and evaluate reality. That IMO has been lacking, and I am glad to see it again.

Hey again fonz, gettin late again for me (ive been up late this whole week, cant wait to catch up on sleep). Its not thats im so much surprised but I never got the impression it was so....unbalanced. I thought there were more traders and people in the biz on here, also you dont see the ratings without registering so i never saw how people often just blurt out the same bs for a +1

This documentary is a straight masterpiece fonz, its gets uclose and personal with David Siegel (timeshare king) and his family, right as they happen to almost go bankrupt. a great movie because what is so nicely illustrated is that this guy's comically grotesque fortune was built with the same cheap money that he uses to sell timeshares to people that can't afford them. And as soon as 2008 hits, all of a sudden his money spigot is cut off and he barely has the money to keep the lights on in his 20,000 sq. ft house...not to mention finish construction on is 90,000 sq. ft. mausoleum where good taste apparently goes to die. The whole of what this film accomplishes is an unbelievaably deep insight into the American financial system, though it wasnt the films original intent.

Try to check it out bro, if i recommend only 1 movie to you, this might be it:

I'm going to have to disagree with you there. TPTB may be able to keep the paper price of gold low by beating it down with digital money, but as long as we have these insane fiscal policies eventually the laws of supply and demand will seperate physical gold from it's paper price.

As far as what I would rather hold a vintage corvette or gold, well like anything else a vintage corvette only has value to a person who is in that particular market. Myself,yeah I love cars, but I wouldn't want anything that I couldn't go out and tear the roads up with. I see them as a commodity...I buy them, use them until I get tired of them or they wear out ,and then I sell them.

What I do find value in is building generational wealth for my family. Precious metals and money allocated to the markets have fit that bill nicely.

But near term, you have to consider your purchasing power. At the moment, I think "buy gold" is a terrible idea and will be dead money for a generation one Bernanke gets finished with it.

Id like to take a crack at refuting the idea that bullion gold and paper gold are totally different and if there is negative feedback from the paper market, that bullion will just "see through it" and shrug it off.

Lets run through this hypothetical scenario: lets just say I am correct and that the Fed slams gold prices to $1500 or $1200 lets say. You all would certainly counter that in this event, bullion dealers would continue demanding a higher price (no less than the current $1600-1700 presumably). So all this situation would really do, is create an unbelievable arbitrage opportunity for cash4gold. Anyone who sells their gold (and I believe you would really see a significant amount of selling by retail but more on that in a minute) but just assume we know enough about human psychology that if prices crashed 25%, and the media made a big deal about the end of the gold "bubble", then there would indeed be some weak hands who'd want to unload gold (yes, even bullion) and there is NO WAY, any dealer will offer them a price above spot, even if he has a market to sell it for 25% higher.

Any of you guys ever try to sell used diamonds or jewelry? Its the same sitch, you get a fraction of the spot value.

So all your price dislocation will do is make the cash4gold guys even richer as they continue to buy from weak hands at spot ($1200) and sell to you bugs at $1650.

Now lets assume for the sake of argument, that this lasts a few years (weak gold between $1000-1200) and as I said, the media wages a relentless campaign to convince everyone the gold bubble has popped and the bull trend is over. What happens to the paper/bullion price dislocation? Simple, the first dealers will begin lowering their prices closer to spot. They are still buying at $1200, so even selling to you bugs at $1400 is a good deal. And so on, until the bullion price reaches the same bid/ask as we see between futures and spot as we do now.

Your scenario could very well play out for a period of time. But while that is playing out the U.S is crossing over 20 trillion in debt. The deficits are still exploding. Inflation is rising and China etc. are backing up the truck to buy bullion at those gift prices while dumping treasury stock as quietly as possible. It ends with the dam breaking and gold exploding.

Here is where I think you guys are wrong, the explosion has already occurred when gold hit $1900. That is the full expression of the fears of currency collapse. At that point the world decided it doesnt care about deficits anymore. Deficits grew from 1990-1998 too. Talk to me in 10 years when the deficit is 100 tril...

What you guys do not understand, with all due respect, is that gold is correlated *ONLY* to psychology and nothing else, no real world metrics apply to predicting its price

"What you guys do not understand, with all due respect, is that gold is correlated *ONLY* to psychology and nothing else, no real world metrics apply to predicting its price"

Same is true of the US dollar; the problem with the dollar is that, at best, it's a piece of fiber and ink, and most "US dollars" are transacted entirely electronically, and are stored as a string of information in a computer. While I agree the value of gold is partly psychological, it helps that it is tangible and has an underlying commodity/industrial value. The US dollar is entirely psychological.

And sure, I wouldnt argue that gold is going to 0. But it is still being mined around $600 per oz and thus has a long way to theoretically fall. As far as USD confidence is concerned, what do you make of this FOFOA article:

In other words, gold is a currency, and should be understood as such. Given this, I would say you are correct that US interest rate policy is only part of the consideration regarding the price of gold, it also depends on what other major currencies are doing. Even a weak dollar doesn't necessarily guarantee a stronger gold price in US dollars. Think of it through the lens of an fx trader and it makes a lot more sense.

Yes, great point! That is exactly the problem, the rest of the worlds countries want to devalue but not too fast, so they must take some consideration before slamming one currency over another. Now who does Bernanke need to consider when slamming gold- nobody. To the Fed it is a victimless crime, if anything they will see it as restoring confidence in currencies that gold falls in investors minds.

What do you make of China's gold imports? How would the entrance of a major gold (or commodity basket)-backed currency affect your view regarding the fiat price of gold? Do you consider this possible sans a major world war?

That is the best question I have seen here- I think China is trying to hedge itself against several eventualities, it has been stockpiling oil as well, and building infrastructure it doesnt need. I think though if their choice was between seeing the price of gold drop 25% for an extended period of time, or seeing their treasury holdings fade to nothing from hyperinflation, Im fairly certain they would choose the former option.

I think in my lifetime we will definitely see a global currency, whether it will be commodity backed is hard to tell (it would enrich certain nations over others, which many of them would find hard to take). I certainly cant envision any real challenger to the USD within 20 years.

One thing about the gold argument that always comes up is this idea of it being underowned, and that people have yet to pile in:

let me say, again with all due respect, that it is a massive delusion for gold bugs that retail has yet to come to the party. Guys, really stand back for a minute and look at the explosion of gold in popular culture, much less as a conversation topic. Cash4gold signs are a worldwide phenomenon, I see them in the cities in the US, Europe, Africa, everywhere.

I dont think there has ever been a time in history (except for the 70's) when average people had buying or selling gold on their minds as much as they do now. Perhaps the last time was in 1896 when William Jennings Bryan gave his cross of gold speech. I could go on and on about anecdotal evidence of my high net worth clients talking about it non-stop and it coming up at every dinner party. Not to mention gold being a massive deal in popular culture already- gold infomercials, gold ATM's, etc. I think you guys are totally unaware of the fact of how *owned* gold actually is.

I mean it depends on geography and culture but in Germany for instance:

"a new study by the Steinbeis Research Center for Financial Services has discovered that 69% of Germans have invested in gold, with around half of them keeping bullion in their own homes[...]On a per capita basis Germans own around 117 grams of gold each, while including gold securities the average German owns around EUD5,750 of gold."

One thing about the gold argument that always comes up is this idea of it being underowned, and that people have yet to pile in:

let me say, again with all due respect, that it is a massive delusion for gold bugs that retail has yet to come to the party. Guys, really stand back for a minute and look at the explosion of gold in popular culture, much less as a conversation topic. Cash4gold signs are a worldwide phenomenon, I see them in the cities in the US, Europe, Africa, everywhere

***************

Well if you're seeing "cash for gold" signs it must mean that everyone is bullish gold-

Guess what? You have it assbackwards-

Show mr the bullish sentiment in gold-besides your bullshit sell your gold signs that have been up for like...ever

I didnt say cash4gold signs means everyone is bullish gold, I said it is indicator of the fact that gold/buying selling is firmly part of the public's mentality at the moment. I struggle to think of another time in recent history where gold was so often talked about.

Regarding the articles you referenced, you will need to do a lot better than Hulbert's indicator of gold sentiment, historically it hasnt shown itself to be a good predictor:

Besides, you are not taking my argument at face value: the psychology of gold will be shaped by the Fed through their control of paper prices.

Dont bother showing sentiment indexes for markets, if you believe markets are free, then sure that makes a big difference. If you believe stock markets are rigged by the Fed, its suddenly a lot less important, isnt it?

Really there are two kinds of holders of PMs here - the paper traders, and the physical holders. Your comments are dead-on regarding paper - in fact they may be excessively conservative. The physical folks on the other-hand generally adopt a very long-term approach to holding PMs, where they are essentially purchasing an insurance policy against systemic crises using devaluing fiat. The debt-based fractional reserve system of banking/currency issuance implies a necessary collapse at some point. What most of us fear is that the collapse of the petro-dollar will be both epic and global - hence the desirability of a universal currency like Au and Ag.

I think you make an excellent point, believe it or not I have some phyz myself. My grnadfather left me what was a small numismatic collection of gold coins and they are now worth a modest fortune compared to what he bought them for. I have often thought about selling at what I consider to be high prices but I dont really need the money at the moment so I hope to give them to my grandkids one day. So I really get that and I think as something to give your grandchildren its an aweosme idea. BUT I think you can buy it significantly cheaper than today and dont be surprised if it is dead money for a decade if the Bernank gets his way.

I have enjoyed this dead-horse discussion quite a bit, and good points both ways.

BUT, Bernanke has no clue. There is no WAY of Bernanke. It's a scotch tape tm policy to keep the gerbil-filled engine of the eCONomy, alive. Nobody has benefitted from his policies - and there's practically zero chance that the U.S. is going to exit this downturn without some major changes to the system (such as collecting SS after reaching 80). This is the same system that went global and is causing riots and discontent everywhere you look. Whatever the status quo sees as a foundation upon which we rebuild the same old b.s., is an illusion.

Every day that goes by in which our representatives do not say something to the affect of "we are totally fucked and need to tackle these problems like adults" is another day closer to complete break-down.

It's 11:58:59:59 (<- we still have a minute and are assured this is plenty of time).

You may be right. Gold may go nowhere and if that's the case, just give it to your children and grand-children now and let them blow it on whatever. They will thank you for it I'm sure. But, you may be keeping it, because you subliminally understand the benefits of not tying up real assets in this farce and at this time.

Dont bother showing sentiment indexes for markets, if you believe markets are free, then sure that makes a big difference. If you believe stock markets are rigged by the Fed, its suddenly a lot less important, isnt it?

***************

Can't you even interpret a simple chart?

Referance the price of the past to the past moves in the sentiment indicator..no?

You do a fine job of countering the prevailing mindset of ZH commenters at large. I am somewhat suspect, however. You are 2 weeks into your ZH stint, and have taken considerable time to refute the resident 'bugs'.

I don't know his motivation but he makes good arguments. What I find weird is that it is usually only me that ends up taking them on. I thought there were a lot of people on here that could speak more intelligently about gold than me. Where did everyone go? Anyway I gotta go make some money. I would love to see someone else take the torch.

I don't take it the wrong way. like i say before if nothing else it challenges me. Like Fonz I would have thought more people would have jumped in on the debate. Not that I want them to gang up on you...I have a feeling you can hold your own if they did though.

Thanks doc, appreciate you saying so as I enjoy these debates with you, I just didnt want you guys to get the impression my *only* reason for coming here was to argue against gold, its just the one topic I find myself to be on the opposite side of most ZH'ers opinions

I think it is that he makes comprehensive statement about the possible scenario as played by the Fed and Freinds™.

I must say the arguments are compelling, and well thought out. Regardless of the motivations, it is good to have a differing point of view presented without the usual associated bile.

"Don't fight the Fed" is a sound statement. If the USD remains intact for the long haul, I see his scenario as being played out. It likely takes a real collapse for the Fed to lose the battle against PMs.

What does such a collapse mean for PMs? Hard to say... but life won't be pretty.

Is it better to be right (as the gold bugs are, fundamentally) or increase wealth?

I don't think buy and hold AU is a panacea, but I do see it as prudent.

I disagree....and for the record I do believe the fed will slam gold, but it will be short lived. I also believe there will be arbitrage opportunities for those who choose. I'll give you a real life example right now...actually two. The first is ammunition. I don't know if you follow the market or not, but ammo is hard to get. I just purchased 1000 rounds of .22LR at the regular retail price. I can, if I choose turn around and sell it for three times that price right now. Here is another opportunity..Walmart will on occassion get an AR-15 in,and they still sell that AR for just under $700.00 . A savy buyer can turn sell that Ar for $1500 to $ 1700. My point is that there will be windows like this, but they will be short lived as the market quickly adjusts. The same thing will happen in the precious metals market.

I don't know if you are familiar with FOFOA, but I encourage you to read his blog:

that's one reason why I expect the high 1300's before it doubles to 2600. Plus will they let brent run straight up to 150 or will they try to take everything down one more time before the real inflationary spiral jumps off?

Sure, but actully taking delivery of any given commodity will become difficult from here on out as the earth is no playing the "print to infinitity" game (which works when there are other places to export that inflation, where will it go now? Mars?)

Tell me, what's the "price" of something that isn't available or the "price" of something that no one wants? Why the modern MBA fails to grasp such concepts continues to baffle me. in other words, the whole "flation" debate is simply mental masterbation.

Well I think for the majority of large scale commodity producers (eg Rio or BHP), they have no option other than accepting big, liquid, manipulatable electronic trading. The world simply cant localize commodity markets that way.

What are they going to do, sell iron ore at a different price in each place they do business?

Besides, as I noted above with the classic car comparison, I think on a relative value basis, golds purchasing power is already very high and people should be careful to think its undervalued in any way at this point

Sorry, but I am confused, the whole point is the dollar is still being used *as* the valuation right? So the dollar is the standard, not gold. Gold will sell for close to its spot price in USD (whatever that happens to be in whatever currency) anywhere in the world. Its not as though BHP is selling its iron ore priced in oz of gold, right?

The BRICs and some middle eastern countries are already settling accounts in something other than dollars, this is why you are confused. ZH and a couple other sites have been picking up on this since 2008, Hedge accordingly.

Yes, I have seen several of these articles, the majority of them concern banana republics like Iran and Venezuela.

but dont you think at the moment, the *vast* majority of the worlds commodity trades still take place in USD and that it is fairly unreasonable to imagine the BRICs suddenly (within the next few years) dethroning the dollar considering the vast majority of their currencies are valued in relation to the dollar, specifically because of commodities?

Besides you havent answered the question- is BHP or Rio or any other major commodity producer at the moment not sourcing their prices in USD and electronically?

whiteshadow let me just throw in here that I know for a fact that as taxes are going up here, anyone who has the ability to, is doing more business in cash. They are not sitting on that cash. They are putting it into real assets. That should continue to drive demand in physical gold.

I will say this. I think where Schiff etc. has run into a wall is the idea that a weak dollar means higher gold prices. But as you and someone else pointed out, if everyone is devaluing together, that is a game changer. It certainly can and has affected price movement. With me it comes down to structural issues. As our economy falls apart our debts and deficits grow and it's QE4eva. Do you want to own dollars in this environment or real assets? to me that is a no brainer. That is why China is buying the shit out of all resources and commodities, and many others are following suit. On the other hand what backs the dollar is the knowledge that we have been known to bomb the shit ot of anyone who gets in out way. That is how it is and how it always has been. That can keep a lid on everything else for a long time I guess.

Schiff got his fucking ass handed to him in 2008. Why? Because he expected (like a lot of rational people) that the 'hard asset' bubble (i.e. real estate) that had blown up in the 2000's would eventually collapse the dollar. It didn't. The *exact* opposite happened. Treasuries and the dollar were the last things standing. Schiff's bets were on the euro, commodities and EM markets, nuff said.

And really fonz, how is this different from the last hard asset bubble in real estate. I read the other day that you yourself flipped some Miami RE, I was there, I remember it so well. Part of the reason the RE bubble got so out of hand is that there was a good amount of inflation in the 03-07 period and people were saying, fuck it, Ill put the money in real estate, at least I cant lose because its a hard asset.

As long as we dont ever get rid of Dollar supremacy (going back to FOFOA's article), the same cycle will keep repeating- people will go out and buy hard assets for the fear of currency devaluation, the hard asset markets will heat up into bubbles, and then collapse when there is no further bagholders, at which point those hard assets deflate, either in terms of the currency they are priced in, or relative to other hard assets.

Bernanke will be there all along prodding the sheep to do exactly what you said, do anything except have cash, put it to work, doesnt matter where, just *anywhere*. That is the wet dream of MMT'ers, the idea that you are harming the economy by keeping money under the mattress and they can encourage you (or force you) to "invest" it so it doesnt lie dormant. In their mind this keeps the economy going at full capacity. They love irrational exuberance for hard assets. Thats why they will eventually get rid of all paper money to go fully digital. Then they can really squeeze you with NIRP

China is buying all the shit it can I think mostly because its worried about its own internals, it really wants to cover its back for any social unrest. China has absolutely no plans or real ideas on what to do if the dollar really did collapse. In that case its pretty much guaranteed civil war there, all the gold and oil in the world cant help them. They really need the dollar, nobody has any alternatives.

I kind of agree about Schiff. He was absolutely screaming bloody murder that the treasury market and dollar were going to collapse. I believe his main bet on it though was PM's (winner) and foreign and mining stocks (crushed). A shitload of people however got wiped out listening to him and shorting treasuries.

I get where you are coming from. I am trying to adapt your thinking into how I see things. Your viewpoint reinforces that what I think will happen can be prolonged. But I don't think it can be avoided. The problem with people spending every last cent on anything is they are not saving anything and are usually running up debt. So either they are working and creating their own mini financial bubble or they are unemployed or old without a pot to piss in. There is no middle ground. You go from big pimping to busted out broke one person at a time. Then you have to tap whoever is left a little more to pay for all the broke ass busted out people. In doing so you cause more and more people to bust out. The gov't has to continue plugging gaps with more QE.

Do you see them going "red money" on us on the way to going digital? Like you say, the goal is to flush oit every last dollar into something.

I tend to agree with you to a large degree- I also dont think ultimately it can be avoided (otherwise id be blogging over at nakedcapitalism) but the one thing I am really not sure about is what happens if a tech innovation comes along the way the internet did and bails the Fed out- is that really unimaginable.

In terms of timeframe I see this very much as a generational thing, I think the whole world is very happy with this whole extend-and-pretend game until the baby boomers are done with their demographics in 20 years.

As to the other things you mentioned, that is why I bring up the welfare state so often, I think without a massive expansion of welfare in scope and size around the world, all this falls apart. Thats why I am so convinced increasing welfare is by far the path of least resistance. It just remains to be seen where the tipping point is, as we develop nanotechnology and robotics though, I would be shocked if the number is far higher than anyone expects. In terms of the future, I think HG Wells was a genius with his Time Machine. Were going that way, the Elys and the Morlocks- Elys have the majority of capital and assets and make the tech breakthroughs, and are reinforced through central planning of markets. Morlocks are dependent on welfare to maintain an average standard of living. I think the real question is how far does the technological age allow us to take this?

As far as Red Money, I think the Fed needs absolutely no help convincing people to go totally digital. The average Joe has never even thought of the possibility of NIRP on their checking acct. Ask any guy on the street- they dont even want coins. They think cash is clunky and they cant wait for the day everything is paid with a cellphone.

I think there is a big difference in being born into the welfare state and being pushed into it. As more people get pushed into it the more society really deteriorates into a bad bad scene, and it's bad already. I don't know how they continue to sell rainbows and unicorns as that worsens.

I am going to punt the digital argument. In that world I am the non conforming guy on the run. I'm biased and admit it.

you have one hell of a diverse backround. do you credit your educational upbringing for that or your family exposing you to all this stuff? i am the thornton melon of history. i learned about the ely's and morlock's from Gary Sinise in "ransom".

Thanks fonz, thats nice of you to say, as I mentioned I feel like I learned way more from the Simpsons than I ever did through the formal education system. Like you I would have to give my dad a lot of credit- he was a big influence on me like I gather yours was. In particular because he actually made and lost fortunes several times in his life (starting with selling his biotech company in the 80's). The most recent time he nearly lost everything (although the correct term was cash poor) was just before this market, and a set of fortuitous circumstances really allowed us to use these events to our advantage and turn things around (i dont want to get too specific online of course) thats how I got into this racket. Its also interesting because unlike when most people come to America to make their fortune, my dad made his in Europe and lost it for the first time when he started speculating in the US and Latin America, which is how we got to Miami. I learned a ton from his successes and failures and we really have a fantastic relationship with him, we werent that close when I was young but now we're friends and partners and its nice. I learned in particular how the game is played in different places, what the rules are and for whom, most importantly. I really profited a lot from his learning curve. Then I also learned from him that no matter what happens you gotta keep a sense of humor, you cant ever let that get away from you. Most importantly, and coming back to your original question, I really learned that real wealth is measured in free time, and if you have it, you have a duty to culture yourself. As the artist Willem de Kooning once put it: "the trouble with being poor, it takes up all your time". That plus the fact that the internet puts all the great films and many other works of genius at my disposal for free, its kind of hard to pass up, right?

thanks for saying so, again, i really thank you for all the time youve invested debating here with me, it was partly your comments that made me decide to jump on board here as I thought there must be at least a few like minded people here.

Its funny also, not only do I really not feel representative of my generation (and it really makes me appreciate my good friends of the same age all the more), but I also feel caught between being an American and a European in many ways as well. I learned to love a lot of things in the US that Europeans totally lack in terms of freedoms, and not just shooting guns etc. but also feeling free to say whatever you want, whenever you want and pushing the limits of the law as Americans love to do. Now dont get me wrong, there are lots of things about America I didnt like and I have no real desire to ever move back full time, but European society is very different from the States at times to me (keeping it real, as my generation would call it). So thats one other reason I feel well at home in South Africa, its has a little bit of everything for me- the wide open spaces and individual freedom I learned to appreciate in the States and at the same time Cape Town is a 400 year old European city. Anywhere I wanna be in the world is just an 8hr connection to Dubai away.

Also my time in Miami was interesting because you spend enough time there, you see nearly everything, it is probably totally representative of the American spirit on crack- this massive illusion that is nothing more than a giant airport connected to various shopping malls. Its an even bigger scam than Vegas. Its nothing but rich South Americans coming by to drop off their money. Listen man, in high school we used to have contests to see who could go clubbing for 7 straight days (during school weeks and all), I made it to 5. Friends from high school used to drop $20k in clubs... Ive brought it up before and I hope you'll forgive me but Ive always loved this: "the road of excess leads to the palace of wisdom" - William Blake

all the best fonz, its been a long week so Im taking the weekend off to do unwind, see you monday